Inflation in 2024: Global Trends, Key Data, and Economic Outlook
Inflation in 2024 has been defined by a gradual but uneven descent from the multi-decade highs of 2022–2023, as major central banks held policy rates at restrictive levels while energy prices stabilized, supply chains normalized, and goods disinflation spread through advanced economies. The year opened with headline inflation still above targets in most of the G7 and euro area, and it closes with core inflation substantially cooler but services prices—and in some economies, housing—remaining the principal obstacle to a durable return to 2 percent. The result is a year of two speeds: rapid disinflation in goods and tradables, slower disinflation in services and shelter, and a policy landscape shifting from aggressive tightening toward cautious easing.
The Global Inflation Picture Entering 2024
At the start of 2024, the inflation shock of 2021–2022 had already begun to recede. U.S. consumer price inflation peaked at 9.1 percent year over year in June 2022; euro area headline inflation peaked at 10.6 percent in October 2022; the United Kingdom peaked at 11.1 percent in October 2022. By December 2023, U.S. headline CPI had fallen to 3.4 percent and euro area headline HICP to 2.9 percent, while the U.K. remained an outlier at 4.0 percent. The 2024 story is the continuation and consolidation of that disinflation—interrupted in the first quarter by sticky services prices and a brief uptick in energy costs, then reinforced through the middle of the year by falling goods prices, easing wage growth, and anchored inflation expectations.
United States: Disinflation With a Sticky Core
U.S. CPI inflation oscillated through the first half of 2024. Headline CPI ran at 3.1 percent year over year in January, firmed to 3.5 percent in March on higher energy and shelter costs, then resumed its decline: 3.3 percent in April, 3.3 percent in May, 3.0 percent in June, and 2.9 percent in July—the first sub-3 percent reading since March 2021. Core CPI, excluding food and energy, proved stickier: 3.9 percent in January, 3.8 percent in March, 3.6 percent in April, 3.4 percent in May, 3.3 percent in June, and 3.2 percent in July. Shelter—owners’ equivalent rent and rent of primary residence—contributed roughly two-thirds of the monthly core increase in several months, reflecting the lagged pass-through of earlier house-price and rent gains into the CPI.
The Federal Reserve’s preferred gauge, the personal consumption expenditures (PCE) price index, told a similar story. Headline PCE inflation fell from 2.4 percent year over year in January to 2.5 percent in February–March, 2.7 percent in April, 2.6 percent in May, 2.5 percent in June, and 2.5 percent in July. Core PCE—the measure the Fed targets at 2 percent—declined from 2.9 percent in January to 2.8 percent in February, 2.8 percent in March, 2.8 percent in April, 2.6 percent in May, 2.6 percent in June, and 2.6 percent in July. The July 2024 readings were the lowest since early 2021 on a 12-month basis, and the three-month and six-month annualized rates—the Fed’s preferred short-run signal—ran near or below 2 percent for core PCE in mid-2024, a key justification for the policy pivot that followed.
Euro Area: Energy Base Effects and Services Stubbornness
Euro area headline HICP inflation fell from 2.8 percent in January 2024 to 2.6 percent in February, 2.4 percent in March, 2.4 percent in April, 2.6 percent in May, 2.5 percent in June, 2.6 percent in July, and 2.2 percent in August—the lowest since mid-2021 and close to the ECB’s 2 percent target. The path was not linear: services inflation held above 4 percent through the first half (4.0 percent in January, 3.9 percent in February, 4.0 percent in March, 3.7 percent in April, 4.1 percent in May, 4.1 percent in June, 4.0 percent in July), reflecting wage catch-up, tourism-related services, and administered prices. Core HICP (excluding energy, food, alcohol, and tobacco) eased from 3.3 percent in January to 2.9 percent in June and 2.8 percent in August. Country dispersion narrowed but remained significant: Germany’s headline rate fell below 2 percent by August, while France and Italy hovered near 2 percent and Spain ran slightly higher on services and food.
United Kingdom: From Outlier to Convergence
The U.K. began 2024 with CPI at 4.0 percent in January, down sharply from the 11.1 percent peak but still the highest in the G7. Inflation fell to 3.4 percent in February, 3.2 percent in March, 2.3 percent in April, 2.0 percent in May, and 2.0 percent in June—the first time since July 2021 that CPI matched the Bank of England’s target—before edging to 2.2 percent in July and 2.2 percent in August. Services CPI, the BoE’s key monitorable, remained elevated at 6.0 percent in January, 6.1 percent in February, 6.0 percent in March, 5.9 percent in April, 5.7 percent in May, 5.7 percent in June, 5.2 percent in July, and 5.6 percent in August, reflecting wage settlements and index-linked price resets. Core CPI excluding energy, food, alcohol, and tobacco fell from 5.1 percent in January to 3.3 percent in July and 3.6 percent in August.
Japan: Exit From Decades of Deflationary Norms
Japan occupied a distinct position in 2024: inflation was moderate by global standards but historically high for Japan, and the Bank of Japan ended its negative interest rate policy in March 2024—the first rate hike in 17 years—followed by a further increase in July. Headline CPI excluding fresh food ran at 2.0 percent in January, 2.8 percent in February, 2.6 percent in March, 2.2 percent in April, 2.5 percent in May, 2.6 percent in June, 2.7 percent in July, and 2.8 percent in August. The “core-core” measure excluding fresh food and energy hovered near 2 percent, and services inflation firmed, signaling that Japan’s long deflationary equilibrium was giving way to a modest inflation regime driven by wage growth from the 2024 shunto negotiations—the largest wage increases in more than three decades.
Emerging Markets: Divergence and Early Easing
Emerging market inflation was highly heterogeneous. Brazil’s IPCA inflation remained near the top of the central bank’s tolerance band through mid-2024, prompting the Banco Central do Brasil to pause its easing cycle. Mexico’s headline inflation hovered in the mid-4 percent range, keeping Banxico cautious before it began cutting in 2024. India’s CPI inflation moderated from above 5 percent in January to under 4 percent by mid-year on food disinflation, giving the Reserve Bank of India room to hold and eventually shift stance. Turkey remained the extreme outlier, with annual inflation above 60 percent through mid-2024 as the CBRT pursued aggressive tightening. China presented the opposite problem: CPI inflation stayed near zero—0.3 percent year over year in January, 0.7 percent in February, 0.1 percent in April, 0.3 percent in May, 0.2 percent in June, 0.5 percent in July, 0.6 percent in August—with producer prices in deflation, underscoring weak domestic demand and property-sector stress.
What Drove the 2024 Disinflation
Three forces dominated. First, goods disinflation: global container freight rates normalized after the Red Sea disruptions of late 2023–early 2024, supplier delivery times improved, and core goods prices in the U.S. and euro area turned flat or negative year over year. Second, energy: Brent crude traded in a roughly $75–$90 range through most of 2024, well below 2022 levels, and European natural gas prices fell sharply from their crisis peaks, though base effects made year-over-year energy contributions volatile month to month. Third, labor market cooling: U.S. quits rates and wage growth (average hourly earnings around 3.6–3.9 percent year over year by mid-2024, down from 5 percent-plus in 2022) moderated; euro area negotiated wages decelerated from their 2023 peaks; U.K. private-sector regular pay growth eased from above 7 percent to around 5 percent.
The Stickiness: Services, Shelter, and Wages
Services inflation was the central obstacle to target convergence everywhere. In the U.S., core services excluding housing ran around 4.5–5 percent year over year in mid-2024; in the euro area, services HICP held at 4 percent; in the U.K., services CPI stayed above 5 percent. Shelter inflation in the U.S. decelerated more slowly than private market rents, which had already cooled, because of the 12-month lag in CPI rent sampling. Wage growth remained above rates consistent with 2 percent inflation in all three economies, though the gap narrowed steadily. By the third quarter of 2024, the trend was unambiguous: services and wage-driven inflation were cooling, but from levels that kept headline and core measures above target on a 12-month basis even as shorter-run annualized rates approached 2 percent.
Central Bank Policy: From Tightening to Easing
The European Central Bank cut its deposit rate by 25 basis points in June 2024—the first cut since 2019—then held in July before cutting again in September, taking the deposit rate to 3.50 percent. The Bank of England cut Bank Rate by 25 basis points to 5.00 percent in August, its first cut since 2020, and held in September. The Federal Reserve held the federal funds target range at 5.25–5.50 percent through July—the highest in more than two decades—before cutting 50 basis points in September to 4.75–5.00 percent as inflation cooled and labor market risks came into better balance. The Bank of Japan moved in the opposite direction, raising rates to 0.25 percent in July. The People’s Bank of China eased modestly. The divergence—easing in the West, tightening in Japan, stimulus in China—defined the 2024 policy landscape.
Market Pricing and Expectations
Inflation expectations stayed anchored, a critical achievement. U.S. 5-year, 5-year forward inflation swaps hovered near 2.2–2.4 percent through 2024; the University of Michigan’s long-run inflation expectations held near 3 percent and its short-run measure fell from 3.0 percent in January to 2.8 percent by mid-year; euro area 5-year forward inflation-linked swaps traded near 2.1–2.3 percent. Breakeven inflation on 10-year TIPS fell from roughly 2.3 percent in January to about 2.1 percent by late summer. The anchoring reflected credibility: markets believed central banks would not declare victory prematurely, and the 2024 data broadly validated that expectation.
Risks to the Outlook
Four risks dominate the inflation outlook into 2025. First, services and wage persistence: if wage growth stalls above 4 percent in the U.S. or U.K., or negotiated wages in the euro area stay elevated, core inflation could plateau above target. Second, energy and geopolitics: Middle East escalation, Red Sea shipping disruptions, or OPEC+ supply decisions could push energy and freight costs higher, reintroducing headline volatility. Third, housing: U.S. shelter disinflation is largely pre-programmed by lagged rents, but a reacceleration in market rents—driven by supply constraints or immigration-driven demand—could extend it. Fourth, trade policy: tariffs and industrial policy subsidies raise the possibility of cost-push inflation in 2025, particularly in the U.S., and could complicate the Fed’s easing path. On the downside, a sharper growth slowdown—particularly in the euro area or China—would accelerate disinflation and validate faster easing.
Economic Outlook: A Soft Landing in Progress, Not Complete
The base case for late 2024 and 2025 is a soft landing: inflation converging toward 2 percent over 12–18 months, growth slowing but not contracting in advanced economies, and central banks easing gradually. The IMF’s 2024 forecasts put global growth near 3.2 percent, with advanced economies near 1.7–1.8 percent and the U.S. above 2 percent. U.S. core PCE near 2.6 percent year over year in mid-2024, with 3-month annualized rates near 2 percent, implies headline and core measures could reach target by late 2025 if services disinflation continues at the 2024 pace. Euro area inflation could undershoot 2 percent temporarily in 2025 on energy base effects before stabilizing. The U.K. is likely to converge last among the G7, with services inflation the binding constraint.
The key judgment for investors and policymakers is that 2024 was the year inflation stopped being the dominant macro risk and became a constraint on policy easing rather than the primary driver of it. The disinflation was genuine, broad-based in goods, and increasingly visible in services. But it was also incomplete: core measures remained above target in the U.S., euro area, and U.K. at year-end, wage growth remained inconsistent with 2 percent in several economies, and the last mile—services, shelter, and expectations—proved the slowest. The 2024 data support a measured, data-dependent easing path rather than a rapid normalization, and they leave the global economy closer to—but not yet at—price stability.
